Insurer risk and performance before, during, and after the 2008 financial crisis: The role of monitoring institutional ownership

TLDR

Monitoring institutional investors are defined by a long‑term horizon, large holdings, independence from management, and a substantial portfolio stake in the investee firm. The study investigates how institutional ownership relates to insurers’ risk and performance across the 2008 financial crisis. The authors measured the level and persistence of monitoring institutional ownership and examined its impact on insurers’ stock stability and performance during the crisis. The study found that monitoring institutional ownership negatively affected insurers’ stock stability and performance during the crisis, that firms took more risk before the crisis, and that while many monitoring investors exited afterward, those who remained had longer horizons and continued active monitoring and risk management.

Abstract

Abstract This study examines the relationship between institutional ownership and insurers' risk and performance before, during, and after the 2008 financial crisis. Monitoring institutional investors are defined as those that have (a) a long‐term investment horizon, (b) large holdings in the investee firm, (c) independence from management, and (d) a large portion of their portfolio invested in the firm. We measure both the level and persistence of monitoring institutional ownership and find a negative relationship between monitoring institutional ownership and an insurer's stock stability and performance during the crisis. Further examination reveals that these firms took more risk before the crisis. Whereas many monitoring institutions exited the insurance market after the crisis, evidence suggests that the remaining institutional investors in the postcrisis period have a longer investment horizon and are active in monitoring and risk management.